Net sales for the first quarter of 2017 were $357.5 million, an increase of 11% when compared to $321.8 million in the first quarter of 2016. Net loss applicable to common shareholders for the first quarter of 2017 was $10.5 million, a 41% improvement versus the first quarter of 2016.

Summary of Operations

Overall sales volume was up 4%, driven by higher volumes in both the agriculture and consumer segments, offset by slightly lower volume in earthmoving/construction. Favorable currency translation increased sales by 4% and a favorable change in price mix contributed another 3% of increased sales.

Gross profit for the first quarter ended March 31, 2017, was $39.7 million, up 40% from $28.3 million in the prior year period. Gross margin was 11.1% of net sales for the latest quarter, compared with 8.8% in the prior year period. The increase in the gross profit percentage was primarily related to the Business Improvement Framework initiatives that focus on lowering costs and increasing efficiencies.

Selling, general and administrative expenses for the first quarter of 2017 were $41.3 million, 18% higher than the $35.1 million in the prior year period. As a percentage of net sales, SG&A was 11.6%, compared to 10.9% for the prior year period. The increase in SG&A expenses was primarily due to non-recurring legal and professional fees, as well as the anti-dumping and countervailing duties litigation, which had a positive outcome during the quarter.

For the first quarter of 2017, research and development (R&D) expenses of $2.8 million, or 0.8% of net sales, and royalty expense of $2.6 million, or 0.7% of net sales, remained flat as a percentage of net sales compared to the prior year period.

Loss from operations for the first quarter of 2017 was $7.1 million, or 2% of net sales, compared to a loss of $11.5 million, or 3.6% of net sales, for the first quarter of 2016, an improvement of 39%.

For the first quarter of 2017, interest expense was $7.7 million vs. $8.5 million in the prior year period. Foreign exchange gain was $4.5 million in the first quarter of 2017 vs. $4.8 million in 2016. Other income was $3.1 million in the first quarter of 2017 versus $3.9 million in 2016.

The provision for income taxes was $3.4 million for the first quarter of 2017, compared to $1.0 million in the prior year period. As a result, the first quarter net loss applicable to common shareholders was $10.5 million, equal to $(0.18) per basic and diluted share, compared to a loss of $18.0 million, equal to $(0.33) per basic and diluted share, in the prior year period.

EBITDA was $15.0 million for the first quarter of 2017 versus $12.4 million in the prior year period, a 21% increase. The company utilizes EBITDA as a means to measure its operating performance. A reconciliation of net loss to EBITDA, a non-GAAP measure, can be found at the end of this release.

Management Commentary

Paul Reitz, president and chief executive officer, commented, "After 18 consecutive quarters with year-over-year decreases in net sales, adjusted for acquisitions, it's great to report a solid performance in the first quarter by delivering 11% top line growth over the same period last year. On a sequential quarter-over-quarter basis, we grew net sales over 16%. We are encouraged by these early signs of growth and cautiously optimistic about the future quarters of this fiscal year. While we experienced top line growth in net sales, we also improved our year-over-year gross profit and gross margin. Our gross margin increased 230 basis points to 11.1% of net sales thanks to our Business Improvement Framework. Extended downturns always present numerous challenges and the Titan team has done a good job weathering the storm. Through our consistent efforts, we were able to accomplish the noted increases this quarter. A gross profit increase of $11 million this quarter compared to first quarter 2016 was good, especially considering some notable events that adversely impacted our recent performance.

"In recent months both natural and synthetic rubber prices have increased by more than 40%, while these increases over the past year have been as high as 50-60%. We follow a disciplined approach to our raw material supply chain that includes the use of forward contracts, volume commitments, and spot buys. In North America, we have contracts with OEMs that typically reprice twice a year based on fluctuations in raw material costs. The bottom line is we are negatively impacted when raw material costs increase as fast as they did recently. During the first quarter, the impact to our gross profit from escalating raw material costs was approximately $9 million. The good news is that prices of raw materials are now starting to stabilize at lower levels.

"Another notable item that adversely impacted our performance was that our selling, general and administrative (SG&A) expenses were up $6.3 million over the same period last year primarily due to one-time legal and professional fees. We remain committed to keeping these expenses flat year-over-year and are encouraged by the progress made in the first quarter on identifying major future reductions in SG&A by our 'profit leak' committee that we discussed on our fourth quarter conference call.

"In April, the U.S. Department of Commerce (DOC) announced stiff new anti-dumping and countervailing duties against off-the-road (OTR) tires from China for the 2014-2015 time period. The identified levels of subsidization have increased dramatically since they were last analyzed by the DOC. Anti-dumping duties for tires imported from China were 33% against ten Chinese tire producers and 105% for all others with countervailing duties that ranged from 34% to 46%. As a result of the increase, U.S. importers of these tires will be receiving a bill for additional duties owed plus interest from the date of entry. We are pleased that that DOC is taking a strong approach toward these companies. We will continue to work with the DOC to ensure that any and all subsidization and dumping by Chinese producers is met by appropriate duty levels.

"I'm pleased to announce that Titan has reached tentative agreements with the United Steelworkers Union (USW) representing our three North America tire plants in Des Moines, Iowa, Bryan, Ohio, and Freeport, Illinois. Each agreement will be submitted to the USW's membership for a vote in the coming weeks. The current agreements expired in November 2016, with our plants continuing to operate under the terms of the expired agreements as both parties worked through the negotiation process.

"Titan has a longstanding, good relationship with the USW, as evidenced over the past couple of years when we worked closely together to present cases to the International Trade Commission (ITC) regarding OTR tires from China, India, and Sri Lanka. Their support in these cases was greatly appreciated and instrumental in the successful determinations from the ITC. For more than 20 years, we've viewed the USW and its members as an integral part of the Titan team and we appreciate their hard work in building quality tires day-in and day-out at our North American tire plants."

Machinery Scope offers premier risk management tools for farm equipment. We provide timely, personalized, and flexible solutions to protect more farm equipment investments than anyone in the industry. We add value and peace of mind when you are buying, selling, or managing your farm equipment by offering extended warranty plans.